Most Americans Haven't Done Much Retirement Planning

The majority of Americans do not
appear to have done much retirement planning, according to the Financial
Industry Regulatory Authority’s (FINRA’s) report, “Financial Capability
in the United States 2016.”

Despite the study’s finding of
overall improvement in Americans’ ability to make ends meet, the
percentages of those who have planned for retirement or have a
retirement account are little changed since 2009. In 2009 37% had tried
to figure out their retirement savings needs, compared to 39% in 2015.
Fifty-seven percent of Americans had employer-sponsored or individual
retirement accounts in 2009, while 58% had them in 2015.

Respondents
with lower income levels are much less likely to be prepared for
retirement than those with higher incomes. Only 19% of those with
incomes less than $25,000 have tried to plan for retirement, compared to
60% of those with $75,000 or more in income. Similarly, the likelihood
to have a retirement account increases dramatically with income, such
that only a small minority of respondents with less than $25,000 in
income have a retirement account (18%), while a strong majority of
respondents with $75,000 or more income have one (87%).

Respondents
who feel they are working towards long-term financial goals are much
more likely than those who do not to have calculated retirement savings
needs (53% vs. 17%) and to have a retirement account (67% vs. 42%).
Among respondents who reported planning for time horizons of more than
10 years, more than half (57%) have tried to calculate their retirement
needs, and nearly three-quarters (73%) have a retirement account.

NEXT: Those with retirement income report less difficulty making ends meet

The study finds that more than half
of Americans (56%) are worried about running out of money in
retirement. Women are somewhat more likely than men to be worried about
running out of money in retirement (59% vs. 53%, respectively).
Respondents ages 35 to 54 are the most likely to be worried (65%),
followed by those 18 to 34 (57%). While those in the highest income
group ($75,000 or more) are less likely than those with lower incomes to
be worried about retirement, more than half of them are worried.

Among
non-retired respondents, those who have tried to calculate retirement
savings needs are slightly more likely than those who have not to be
worried about having enough money in retirement (64% vs. 59%).
Non-retired respondents with retirement accounts are just as worried as
those without retirement accounts (62% vs. 60%).

Respondents who
receive retirement income (pension plans, Social Security, or
withdrawals from retirement accounts) are the most likely to have no
difficulty making ends meet. This may be due in part to the higher
likelihood of having multiple income sources among these respondents,
the report says. For example, among those receiving pension payments,
95% have at least one other additional source of income (out of the
seven listed in the survey). In contrast, among those receiving salaries
or wages, only 55% have more than one source of income.

Nearly
two-thirds (65%) of respondents receiving income from a traditional
pension plan report no difficulty making ends meet. Fifty-seven percent
of those receiving Social Security retirement benefits report no
difficulty, as do 55% of those receiving withdrawals from retirement
accounts (e.g., 401(k), IRA, Keogh).

NEXT: Risk tolerance and financial literacy

An important determinant of how people choose to invest their savings
and retirement wealth is their attitude towards financial risk. Only
about one in five Americans (21%) say they are willing to take financial
risks. However, risk tolerance has increased considerably relative to
2009, when 12% of respondents reported being willing to take risks. Men
are much more likely than women to say they are willing to take risks in
financial investments (28% vs. 14%, respectively).

To evaluate
financial knowledge, respondents were exposed to a series of questions
covering fundamental concepts of economics and finance that may be
encountered in everyday life, such as calculations involving interest
rates and inflation, principles relating to risk and diversification,
the relationship between bond prices and interest rates, and the impact
that a shorter term can have on total interest payments over the life of
a mortgage. The survey reveals relatively low levels of financial
literacy among Americans as measured by these standard questions. While
the correct response to some individual questions reaches 75%, only 14%
of respondents were able to answer all five questions correctly, and 37%
were able to answer at least four questions correctly.

Slightly
less than one-third of respondents (31%) report having been offered
financial education at a school, college, or workplace, and 21% say they
participated. On the surface, exposure to financial education appears
to be associated with better performance on the financial literacy quiz
questions. Respondents who stated that they participated in financial
education score higher than those who were offered but did not
participate, who in turn score higher than those who were not offered
financial education.

However, the report says it is important to
note that these findings do not imply a causal relationship between
financial education and financial literacy, and may be entirely
attributable to differences in education, employment, and other
demographic factors. It is also possible that those who are more
interested in financial literacy might be more likely to seek out
financial education.